What Is Income Protection Insurance and How Does It Work?

Covermate Life
2 days ago
3 min read

Protecting your family with income protection from Covermate Life

When life takes an unexpected turn — through illness or injury — your ability to earn an income can disappear overnight. That’s where income protection

insurance comes in. At Covermate Life, we believe your income is your most valuable asset, and protecting it should be a key part of your financial wellbeing strategy.

What Is Income Protection Insurance?

Income protection insurance replaces a portion of your income if you’re unable to work due to illness or injury. It provides regular, ongoing payments (usually up to 70% of your pre-tax earnings) to help cover everyday expenses like:

Rent or mortgage repayments
Utilities, groceries, and transport
School fees and childcare costs
Loan or credit card repayments

Unlike workers compensation or Centrelink benefits, income protection is customised to your occupation, income, and lifestyle, giving you the freedom to recover without financial stress.

How Does Income Protection Work?

When you’re unable to work due to a covered medical condition, your income protection policy provides a monthly benefit after a waiting period.

Key features include:

Benefit amount: Typically up to 70% of your pre-tax income.
Waiting period: The time before benefits start (commonly 30, 60 or 90 days).
Benefit period: How long payments continue — often 2 years, 5 years, or to age 65.
Policy structure: You can hold cover inside or outside super, depending on your needs.

Holding your cover outside super often gives greater flexibility and broader definitions of disability, while inside super can make premiums more affordable.

Example

Let’s say Josh, a 38-year-old engineer, earns $100,000 per year. He breaks his leg playing sport and can’t work for four months.

He’s insured for 70% of income = $5,833 per month
Waiting period = 30 days
Benefit period = 2 years

After 30 days, Josh’s insurer starts paying monthly benefits until he can return to work — giving him financial breathing room to focus on recovery.

Why Income Protection Matters

Life doesn’t pause when you can’t work. Bills keep coming, families still rely on income, and savings can run out fast. Income protection helps you:

✅ Maintain your lifestyle and financial commitments

✅ Reduce pressure during recovery

✅ Protect your long-term financial goals

✅ Access tax-deductible premiums (outside super)

At Covermate Life, we tailor income protection to your unique situation — whether you’re employed, self-employed, or running a business.

What Income Protection Doesn’t Cover

It’s important to understand the limits. Income protection does not cover:

Redundancy or job loss for non-medical reasons
Voluntary leave or sabbaticals
Pre-existing medical conditions (unless disclosed and accepted)

Your adviser will help clarify any exclusions and make sure your cover matches your needs.

How to Choose the Right Policy

Choosing the right income protection policy depends on your:

Occupation and income stability
Savings and expenses (how long you could manage without income)
Existing superannuation cover
Family and debt commitments

An experienced adviser at Covermate Life can help you compare insurers, waiting periods, and benefit structures to find the right balance between affordability and protection.

The Takeaway

Income protection isn’t just about replacing your income — it’s about protecting your independence, security, and future goals.

At Covermate Life, we help Australians build protection strategies that are ethical, transparent, and tailored to real-life needs. Our team ensures every policy recommendation meets not only your financial goals but also the ethical standards set out in the Code of Ethics, so you can move forward with complete confidence.